U.S. Congress hands energy industry historic victory

In a crushing demonstration of the growing power of domestic energy producers, and waning influence of environmental groups, Congress is poised to enact legislation fast-tracking approval for the controversial Keystone XL pipeline.

It is a stinging defeat for environment groups that have lobbied fiercely against the Keystone extension, and comes little more than a month after the president had sought to take the heat out of the issue by postponing approval beyond the next election pending a review of alternative routes through Nebraska.

The Keystone provisions have been inserted by congressional Republicans into a must-pass bill to make them difficult for the president to veto.

The Temporary Payroll Tax Cut Continuation Act (HR 3630), which has been approved by the Senate and was agreed upon by the House of Representatives following a compromise deal on Thursday, instructs the president to grant a permit for the pipeline within 60 days, or report to Congress on why construction of the pipeline is not in the national interest.

If the president procrastinates and neither grants approval nor explains why it is being withheld within 60 days, the pipeline will be automatically approved “by operation of law.”

To prevent further intervention by the courts or the Environmental Protection Agency, the law expressly states the environmental impact statement already performed satisfies all the requirements of the 1969 National Environmental Policy Act and the Historic Preservation Act.

The congressional declaration will bar further challenges to the pipeline in court in case the route is altered in the portions crossing Nebraska, or criticism about the adequacy of the existing study. And to ram the point home it states unambiguously “no further federal environmental review shall be required.”

Other provisions seek to bar any other challenge under federal law and ensure any re-routing around the sensitive Sand Hills region requested by the Nebraska governor is automatically approved by the federal authorities, subject only to ordinary pipeline safety regulations, so construction can begin without further delay.

The Keystone provisions were originally inserted by the Republican-dominated House of Representatives in a bid to compel the president to approve them by including them in high-priority legislation extending expiring tax cuts. But they were approved by a lopsided 89-10 majority in the Democrat-controlled Senate in essentially the same form.

The only change was to move them from the front of the bill, where they had been provocatively included as Title I by the House as “job creation incentives,” to the back, where they are now written up in Title V as “other provisions.”

Congressional Democrats and President Barack Obama have both decided tax cuts and job creation are higher priorities in the current election cycle than environmental concerns about a pipeline running across beautiful but remote sections of the Great Plains.

More broadly, the law’s prospective passage is a clear sign energy security and affordability are now higher on the agenda than climate change and emission controls, at least in the short-term.

It marks a stunning reversal of fortune from the start of the presidency three years ago, when environment groups were in the ascendant, pushing for a broad federal cap-and-trade bill, and were thwarted only by a handful of senators from coal-producing and manufacturing states in the industrial heartland.

But the passage of the Waxman-Markey cap-and-trade bill by the then-Democrat controlled House proved to be the high point of the movement’s influence, and the start of a long retreat, marked by a series of reversals and climb-downs on the part of its allies in the administration and Congress.

There is no doubt environment and climate change campaigners over-reached, over-estimating the strength of their support and the electorate’s willingness to shoulder higher energy costs to limit emissions of climate-altering greenhouse gases.

But in the end the climate agenda has fallen victim to the grinding recession and persistent unemployment on the one hand, and the fracking revolution on the other, which has suddenly opened up the prospect of plentiful domestic energy supplies.

Fracking and economic malaise shattered the alliance between environmentalists, national security specialists, parts of the energy industry and progressive politicians, which provided the early momentum for ambitious energy legislation.

With job creation now uppermost on politicians minds as the 2012 elections approach, neither congressional Democrats nor the president can afford to be seen supporting measures that would block the expansion of domestic energy resources.

The triumph of the energy industry over environmental groups on Keystone probably signals a similar shift in the debate over hydraulic fracturing. So far, with fracking focused on natural gas production, Congress has largely treated the issue as an environmental one, and lawmakers have pushed the industry hard on safety and pollution concerns.

But as fracking is redirected towards oil production, and economic rewards to pioneering states like North Dakota and Texas become evident, the framing of the issue is set to switch from the environment and to energy security and affordability.

The scale of the environmentalists’ defeat is difficult to overstate. Lobbyists for energy producers managed to insert carefully crafted provisions into an unrelated bill and railroad it through a divided Congress and a hostile White House.

Keystone authorisation is one of the very few energy-related measures to pass into law any time in the last decade. Most have failed to clear Congress amid partisan divisions. But energy is rising rapidly up the agenda, as shown by the increasing number of oil and gas-related bills being introduced into the last two congressional sessions.

Energy lobbyists managed to make Keystone one of the top priorities for House Republicans, adding it as one of only a handful of extraneous riders to the payroll tax bill, and resisting efforts to remove it.

Congressional approval for Keystone is likely to embolden frackers to push Congress for similar safeguards to keep unsympathetic regulators from the Environmental Protection Agency and other parts of the federal government out of their industry, leaving decision-making to the states, where frack firms will push the local job creation and economic benefits.

For conservationists and those worried about climate change, it is a bitter end to a year which has seen them pushed back on all fronts, and will leave them scrambling to find a new strategy in 2012.

John Kemp is a Reuters market analyst. The views expressed are his own.